Correlation Between Eaton PLC and Franklin Electric

Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Franklin Electric at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Eaton PLC and Franklin Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eaton PLC and Franklin Electric Co, you can compare the effects of market volatilities on Eaton PLC and Franklin Electric and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Eaton PLC with a short position of Franklin Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Franklin Electric.

Diversification Opportunities for Eaton PLC and Franklin Electric

-0.47

Correlation Coefficient

Eaton PLC  Franklin Electric

Very good diversification

The 3 months correlation between Eaton and Franklin is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Franklin Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Electric and Eaton PLC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Eaton PLC are associated (or correlated) with Franklin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Electric has no effect on the direction of Eaton PLC i.e., Eaton PLC and Franklin Electric go up and down completely randomly.

Pair Corralation between Eaton PLC and Franklin Electric

Considering the 90-day investment horizon Eaton PLC is expected to under-perform the Franklin Electric. In addition to that, Eaton PLC is 2.01 times more volatile than Franklin Electric Co. It trades about -0.09 of its total potential returns per unit of risk. Franklin Electric Co is currently generating about 0.01 per unit of volatility. If you would invest  9,702  in Franklin Electric Co on December 29, 2024 and sell it today you would earn a total of  18.00  from holding Franklin Electric Co or generate 0.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Eaton PLC  vs.  Franklin Electric Co

Eaton PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eaton PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Franklin Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Franklin Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Eaton PLC and Franklin Electric

The main advantage of trading using opposite Eaton PLC and Franklin Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, Franklin Electric can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Franklin Electric will offset losses from the drop in Franklin Electric's long position.

The idea behind Eaton PLC and Franklin Electric Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.